Engineering Procurement & Construction Making India Brick by Brick

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Making India brick by brick

2 | Engineering, Procurement & Construction (EPC): Making India brick by brick
Foreword
Dear readers,
It is with great pleasure that I present the second EY-EPC TL at
the 5th
EPC World Awards. While writing the foreword I recall
the first time we released the EY report at the 4th
EPC World
Awards. It stated that the EPC market was in a fragmented state
and needed to undergo a high level of transformation, if future
sustainability was to be assured.
It also pointed out that though evidently there was an increase
in EPC activity, the sector was facing headwinds from several
directions. The intensively researched EY report contended that
all the bottlenecks faced by the EPC industry could be swept
away by more nuanced policies emerging from New Delhi and
state capitals of the country.
I had asserted in my foreword last year that India will build
infrastructure across the board and both domestic and foreign
investors will participate in this significant endeavor. All this is
pleasantly coming true with a stable BJP government in place
and its pre-dominant focus on infrastructure development,
braving the headwinds — surely and steadily.
Mark Zuckerberg’s words spell the current Indian government’s
drive and direction, “There is a huge need and a huge
opportunity to get everyone in the world connected, to give
everyone a voice and to help transform society for the future.
The scale of the technology and infrastructure that must be built
is unprecedented, and we believe this is the most important
problem we can focus on”.
India’s US$1.9 trillion economy is looking at rebounding to 6.3%
growth by the end of this fiscal from last year’s 4.7% and is
poised to overtake China’s growth rate by 2016. The “Make in
India” campaign intends to give a big boost to the manufacturing
sector. The Government has already moved to amend land,
labour and foreign investment laws facilitating to make it easier
for companies to do business.
The current Government in India has not scrapped significant
projects of the last government and is taking action for their
rapid implementation.
The former UN Secretary-General Kofi Annan noted that “good
governance is perhaps the single most important factor in
eradicating poverty and promoting development”.
Perceived as more reform-oriented and business friendly, the
Government is perfecting the antidote to ward off red tape,
to avoid derailment of aspired growth plans. The overall new,
albeit cautious, sense of excitement in industry and business
is pointing toward India looking as a much more attractive
investment destination.
American, Chinese, Japanese, German and UK companies
have evinced great interest in partnering Indian infrastructure
projects that are all set to restore the nation to a high-growth
path. The Government headed by Narendra Modi, has a business
focus, which is evident from the business-friendly agenda of the
Government.
Thomas Jefferson asserted, “The whole art of government
consists in the art of being honest. Only aim to do your duty, and
mankind will give you credit where you fail.”
The 100 smart cities, industrial and dedicated freight
corridors, improved road and rail connectivity, increasing
share of manufacturing from 15% to 25% of GDP, sourcing
the estimated INR40–60 trillion in the next two decades that
urban municipalities may need to catch up on the backlog in
infrastructure and service delivery and to meet future needs will
call for aggressive reforms in the next few months and in the
coming budget.
A strong infrastructural backbone is essential to sustain
economic growth. The Government’s focus on infrastructure
development is evident from the Prime Minister’s remark in
Brisbane, “We must focus on generation-next infrastructure”.
This EY report is insightful and comprehensive and will serve as
a guide for policy makers and the captains of the EPC sector in
charting their course of action.
Tejasvi Sharma
Managing Director
EPC World
EPC World

Engineering, Procurement & Construction (EPC): Making India brick by brick | 3
Dear readers,
Infrastructure development has been fuelling India’s economic
growth over the past decade or so. Increasing population, rapid
industrialisation and urbanisation as well as global trade are
driving the demand for consistent investment in infrastructure
development. Recognizing these requirements, the Government
plans to invest INR56.3 trillion in infrastructure during the
Twelfth Five Year Plan (2012-17) and approximately 50% of
the investments are to be contributed by the private sector.
Considering this major potential opportunity in the infrastructure
segment, the EPC sector is likely to be benefited.
The EPC market in India has evolved over the last few years
with increased project size and complexity, increasing private
clients and entry of several foreign players. The concept of EPC
has been evolving over the last few years and has emerged
as a preferred form of contracting by clients along with PPP
models. Even when projects are awarded on PPP basis, there is
an EPC opportunity for market players. This has been further
strengthened by the fact that the highway sector, after several
years of operating in the PPP mode, is considering to award
more projects on the EPC model. Specialised EPC sectors such
as marine, tunneling, hydro, industrial and oil and gas continue
to prefer awarding projects in the EPC mode.
However, the construction industry as a whole and the
infrastructure sector, in particular, are currently on a crossroad
in the country as interest from the private sector has declined
significantly in the last couple of years due to the economic
slowdown and a legacy of unresolved challenges. Issues
impacting projects — right from planning to operation stage —
have made several of them unviable. Significant cost overruns,
regulatory bottlenecks and aggressive bidding positions
taken by a few market players are some of the key concerns
affecting the EPC sector. Moreover, with increasing working
capital requirements and the resultant increase in leverage, the
construction players are left with limited opportunity to raise
further capital to fuel growth in the current scenario. Private
equity funds too are cautious with their new investments, since
there is limited opportunity of exit due to unfavorable capital
markets. Therefore, the sector is reeling under significant
liquidity constraints. Though it was easy to overlook these
challenges during the period of high-economic growth, these
issues and challenges were brought to the fore with India’s GDP
growth slipping to 4.5% in FY14.
However, the new Government has set the ball rolling once again
with several announcements to reform the sector and boost
investor sentiments. It has laid down its agenda to resurrect
infrastructure development. Bids are being invited again for
stalled projects and new infrastructure projects have been
announced including smart cities, high speed rail corridors,
greenfield airports, greenfield major ports, port-based SEZs, and
housing for all by 2022. The Union Budget 2014–15 has also
emphasised on removing the bottlenecks in the infrastructure
sector. The initiatives such as setting up of institution to provide
support to mainstreaming PPPs, Infrastructure Investment
Trusts, Make in India programme and permitting banks to raise
long-term funds for lending to the infrastructure sector with
minimum regulatory constraints for the sector.
However, the experience in building infrastructure projects so far
has cast a shadow on the expectations of meeting the Twelfth
Plan investment targets. Given the significant requirement,
several changes need to be made on regulatory and operational
fronts. An Integrated and holistic infrastructure development
plan and access to long-term funds are long overdue. The
Government should provide for speedy regulatory clearances
and robust dispute resolution mechanism, besides looking
beyond the L1 bidding mechanism to dis-incentivise private
sector bid aggressively. Moreover, there is a need to introduce
robust contract renegotiation and rebalancing framework
to manage project risk over long-term concession, without
deteriorating lenders’ confidence in the sector.
Given the size of the infrastructure market, there are ample
opportunities for EPC players. They can expand their business
by diversifying operations, strategic tie-ups and moving up the
value chain. The re-emerging euphoria in the infrastructure
sector will get the EPC sector back on the growth trajectory.
This report discusses the potential opportunity, recent
trends witnessed by the sector, challenges for re-enforcing
sustainability and possible ways to overcome challenges. We
hope you find it a good read.
EY
Sushi Shyamal
Partner, Transaction Advisory Services,
Ernst & Young LLP

Abbreviations
AERA Airports Economic Regulatory Authority
BoP Balance of Plant
BOT Build-Operate-Transfer
CCEA Cabinet Committee on Economic Affairs
CRR Cash Reserve Ratio
CBM Coal Bed Methane
CAG Comptroller and Auditor General
CDR Corporate Debt Restructuring
DFC Dedicated Freight Corridor
DMIC Delhi Mumbai Industrial Corridor
DPR Detailed Project Report
DDT Dividend Distribution Tax
EAC Economic Advisory Council
EPC Engineering, procurement and construction
EIA Environment Impact Assessment
ECB External Commercial Borrowing
FIPB Foreign Investment Promotion Board
FSA Fuel Supply Agreement
GIFT Gujarat International Finance Tec-City
HPEC High Powered Expert Committee
HSR High Speed Rail
IDF Infrastructure Debt Fund
InvITs Infrastructure Investment Trusts
IGCC Integrated Gasification Combined Cycle
IRR Internal Rate of Return
IWT Inland Water Transport
JICA Japan International Cooperation Agency
JNNURM Jawaharlal Nehru National Urban Renewal Mission
MRO Maintenance, repair and overhaul
MRTS Mass Rapid Transport System
MAT Minimum Alternate Tax
MoEF Ministry of Environment and Forests
MNRE Ministry of New and Renewable Energy
MoP Ministry of Power
MoUD Ministry of Urban Development
MCA Model Concession Agreement
NHAI National Highway Authority of India
NHDP National Highway Development Project
NIMZ National Investment and Manufacturing Zone
NELP New Exploration Licensing Policy
NBFC Non-banking Financial Company
NPA Non-performing asset
OIDB Oil Industry Development Board
PSL Priority Sector Lending
PPP Public Private Partnership
QIP Qualified Institutional Placement
REITs Real Estate Investment Trusts
SEBI Securities and Exchange Board of India
SARDP-
NE
Special Accelerated Road Development Project-
Northeast
SEZ Special Economic Zone
SPV Special Purpose Vehicle
SLR Statutory Liquidity Ratio
T&D Transmission and distribution
TEU Twenty-foot equivalent
UMPP Ultra Mega Power Plant
UMSP Ultra Mega Solar Project
VGF Viable Gap Funding

Introduction
1.

Indian construction sector
The construction sector in India is the country’s second-largest economic segment after agriculture. It employs more than 40 million
people and contributed nearly 8.1% to the national GDP in 2012–13. It is expected to have contributed 7.8% in 2013–141
.
According to industry estimates, the Indian construction industry was worth INR8,184 billion in FY13, which is estimated to be
INR9,013 billion in FY142
. Prior to the global economic crisis in 2008, the industry grew at more than 10% during 2005–07. After
2008, the growth moderated, with the industry registering an average real growth rate of 4.8% during 2008–2014. However,
the industry is now expected to recover with the formation of a stable government at the center and its thrust on infrastructure
development to revive economic growth.
* Estimated
Source: Business Monitor International
Infrastructure projects are major demand drivers in the Indian construction industry accounting for an estimated 49% of industry
value followed by real estate and housing (42%) and industrial projects (5%)3
.
The construction industry is highly fragmented and working capital intensive, particularly in the case of projects of long gestation
periods. Although the project risk for contractors is low, due to a relatively small investments commitment in projects, institutions
have been cautious about lending to small contractors until recently. This is due to the high risk associated in delay of payment by the
client. Consequently, several companies had to meet their working capital requirements by borrowing funds at high interest rates.
Demand for construction has been sluggish in 2013, with industry growth estimated at 1.6% over the previous year4
. Bottlenecks
in new infrastructure projects and deferment of investments and new projects in the industrial sector due to slowdown in the
manufacturing sector have contributed significantly to this lack of growth. Developers have faced cash-stress due to subdued capital
markets, which made it difficult to raise equity for projects. Moreover, banks have also reached their sectoral lending limits restricting
fresh lending to the sector. Major construction players are experiencing liquidity crunch because of extended recovery timeframes
from their customers and tightening of funding norms being employed by institutional financers. Furthermore, increasing labour
costs and commodity prices as well as aggressive tendering have put pressure on companies’ margins over the last one to two years.
2,686
3,224
3,889
4,510
5,004
5,715
6,898
7,600
8,184
9,013
12.79%
10.33%
10.78%
5.34%
6.65% 5.72%
10.80%
1.11%
1.64%
4.38%
0%
3%
6%
9%
12%
15%
0
4,000
8,000
12,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
(INRbillion)
Growth of India's construction industry
Construction industry value Real y-o-y growth rate

Economic growth driven by considerable investment in infrastructure sector in the past decade
India’s economic growth has primarily been driven by considerable investment in infrastructure development after liberalisation.
These investments have increased sharply to INR23.8 trillion in the Eleventh Five Year Plan from INR9.1 trillion during the Tenth Five
Year Plan. These investments are spread across infrastructure sectors such as roads and highways, telecom, airports, ports, power,
oil and gas and railways and have helped the Indian economy attain an improved growth trajectory in the last ten years prior to 2012.
They are further estimated to increase to INR56.3 trillion in the Twelfth Plan.
The share of infrastructure as a percentage of GDP increased from 5% in the Tenth Five Year Plan to around 7.2% in the Eleventh
Five Year Plan on the back of a favourable policy support5
. Over the past decade, public sector investment as a percentage of GDP
has remained consistent and the increase in total share can be attributed to an increasing share of private sector investment as
percentage of GDP.
* Revised estimates, ** Projected investment
Source: Table 3.16-Investment during the Eleventh Plan as Percentage of GDP and Table 3.17- Projected Investment in Infrastructure—Twelfth Plan, Volume -1, Twelfth Five
Year Plan (2012-2017), Planning Commission
Sectors such as roads, airport, power and ports have become very attractive for both domestic and foreign investors. This is due
to relatively low entry barriers in these markets, a strong project pipeline and a considerable opportunity size. On the other hand,
sectors such as railways and buildings are relatively low on the attractiveness scale. The railways are awaiting unbundling, while
buildings are waiting for the recovery of the real estate sector. As a result, the market as a whole has become a mixed bag of
opportunities in which different types of players are participating.
Investment in infrastructure as a percentage of GDP
Private Public Total
0
2
4
6
8
10 Tenth Five Year Plan Eleventh Five Year Plan Twelfth Five Year Plan

Economic slowdown adversely impacted the construction sector in the last two years
The last two years have been difficult for the Indian economy when it reported less than 5% growth due to factors such as sustained
slowdown in the global economy, Euro crisis, domestic structural constraints, rupee depreciation and inflationary pressures. As a
result, India’s GDP grew by only 4.5% and 4.7% in FY13 and FY14, respectively.
Source: Centre for Monitoring Indian Economy (CMIE) and IMF
This period was marked by subdued investments in the construction sector, which was adversely affected by factors such
as significant cost overruns and regulatory bottlenecks. Moreover, the sector bore the brunt with increasing working capital
requirements and the resultant increase in leverage as well as the players’ inability to raise additional capital due to sluggish capital
markets. As a result of this, on-going projects were stalled and new projects could not attract bidders.
The sector is poised for growth with the formation of a new Government
The formation of the new Government at the Centre in the first-half of 2014 holds considerable promises for the revival of the
investment cycle and economic growth in the country. The new Government has laid down its agenda to resurrect infrastructure
development and the need to fast-track stalled projects. This is expected to expedite the process of clearing and implementing
projects by formulating clear guidelines and simplifying procedures.
GDP growth rate: India vs. World
2.9
5.6
5.2
4.6
8.5
7.0
9.5 9.6
9.3
6.7
8.6
8.9
6.7
4.5 4.7
4.0
5.4
4.9
5.6 5.7
3.0
0.0
5.4
4.1
3.4 3.3
0.0
4.0
8.0
12.0
GDPratein%
India World
1970's
1980's
1990's
FY01-FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14

Considering the new Government’s emphasis on infrastructure development, the total construction opportunity, both infrastructure
and industrial, is expected to grow substantially, going forward. This growth in construction opportunity will be driven by
infrastructure investment in the following areas:
The new Government has also introduced few initiatives such as incentives for the establishment of Real Estate Investment Trustsand
Infrastructure Investment Trusts to bring infrastructure financing back on track. These instruments will be granted a tax-pass through
status to avoid double taxation and encourage investment.
With opportunity come challenges
Even with several opportunities and expectation of enhanced support from the new Government, the construction sector continues
to be troubled by various challenges. The increasing backlog of infrastructure projects, mounting losses due to delays and cost
overruns has dampened the mood. Achieving financial closure for new projects has become a challenge, especially for many who
had to go for debt restructuring for their current portfolio. Factors such as delays in land acquisition and environmental clearances,
capacity constraints, weak project management, dependency on human labour, poor governance and wide spread corruption have
further eroded investors’ interest.
Timely measures can go a long way in sustaining the long-term growth of the sector
There is a need to realise that a large project pipeline alone is not sufficient, the sector needs a helping hand to continue on its
growth trajectory. Considering that the fundamentals of the sector’s growth are in place, timely and innovative initiation and
implementation of policy measures can go a long way in facilitating its journey. The new Government has announced its agenda to
revive the growth of the sector. It plans to adopt a multi-pronged strategy to simplify procedures, expedite ongoing projects and
develop new ones.
The Government has started putting efforts towards integrated and holistic development of infrastructure. Consolidating the roads
and highways as well as ports and shipping under one ministry is a step taken in this direction. Similarly, coal and power sectors —
inter-linked through fuel supply and generation linkages — will be overseen by a single ministry.
It has also introduced new initiatives to bring infrastructure financing back on track. The Union Budget 2014–15 suggested banks to
raise long-term funds for lending to the infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority
Sector Lending (PSL). A finance corporation with a corpus of INR1,000 billion has been proposed to be set-up, in collaboration with
Japanese investors, to fund projects in the road sector6
. The Government has also indicated its intentions to amend the recently
enacted new land acquisition law to facilitate the process of land acquisition and make it less costly for developers. Implementation of
these measures will help it attract and retain investors’ interest by providing them with a level playing field.
►► National highways, state highways and expressways
►► High-speed rail corridors
►► Dedicated freight corridors and freight terminals
►► Greenfield airports
►► Ultra Mega Power Plants
►► High-voltage transmission lines
►► Piped-gas distribution networks
►► Greenfield major ports
►► Mass Rapid Transport System
►► Water supply and waste treatment systems
►► Initiative to provide housing for all by 2022

EPC sector in India continues to evolve
In India, the construction industry has evolved from item rate packages to lump-
sum contracts and then to EPC contracts over the years. It has resulted in a visible
shift from owner-managed projects to projects where the risk of time and cost
overruns has been transferred to the contractor, along with the responsibility of
designing, procurement of material and construction. This form of contract even
protects the owner/developer from currency and interest rate fluctuations.
Initially there were only few contractors in India who had the required technological
and financial capabilities to take overall responsibilities of the complete project;
therefore, large projects were divided into small EPC packages. Gradually, EPC
contractors developed technical expertise and became financially competent. As
a result the project owners began to award them complete projects as single lump
sum turnkey contract.
The Indian EPC sector is still developing and is different from the global EPC
sector where EPC contractors have adopted a modern variation called EPCM —
engineering, procurement and construction management. The EPC contractors
have expanded their roles and have adopted the roles of project consultants by
managing the project from design to commissioning. This has limited the role of
engineering consultants and large EPC companies have transformed into solution
providers. Globally, large EPC players manage projects in different corners of the
world with production hubs strategically located in several continents. They have
highly sophisticated project management and risk management techniques, which
help them to monitor and manage projects efficiently across different locations. It
has been observed that some of the global players also acquire a strategic stake
in the equity of the project, which express their commitment as well as provide
confidence to owners and investors.

Segment Major domestic players Major foreign players Insight
Infrastructure /
General Contracting
Larsen & Toubro Limited, Hindustan
Construction Co. Ltd., Gammon India,
IVRCL, Simplex Infrastructure Ltd.,
Gayatri Projects Ltd., Patel Engineering
Ltd., Era Infra Engineering Ltd., Sadbhav
Engineering Limited, Nagarjuna
Construction Company Ltd.
Isolux Corsan, ITD Cementation
India Limited, IJM (India)
Infrastructure Limited, Leighton,
ACS Construction Group Ltd.,
Vinci Construction, CEC
Increasing opportunities
in the infrastructure
sector have attracted
many new domestic as
well as new entrants to
this space
Building
construction
— Residential
and Commercial
Segments
Larsen & Toubro Limited, Shapoorji
Pallonji & Co. Ltd., Ahluwalia Contracts
(India) Ltd., B L Kashyap & Sons Ltd,
B. G. Shirke Construction Technology
Private Limited, B. E. Billimoria &
Co. Ltd., BSEL Infrastructure Realty
Limited, Consolidated Construction
Consortium Ltd., Mackintosh Burn
Ltd., Man Infraconstruction Limited,
Supreme Infrastructure India Ltd., Unity
Infraprojects Ltd., Vascon Engineers Ltd.
Arabian Construction Company,
Leighton, Samsung Engineering
Space is unorganised in
nature and is dominated
primarily by local
contractors
Oil & Gas EPC Larsen & Toubro Ltd., Punj Lloyd Ltd.,
Petron Engineering Construction Limited,
Essar Projects (India) Limited, McNally
Bharat Engineering Co. Ltd., Leighton,
Engineers India Limited, Fabtech Projects
& Engineers Ltd., Jaihind Projects Ltd.
Aker Solutions, Leighton
Welspun Contractors Pvt. Ltd.,
Bechtel Bechtel Corporation,
Linde Engineering India Pvt.
Ltd., Tecnimont ICB, Samsung
Engineering, Uhde India Limited
Significant competition
from foreign participants,
especially for offshore
contracts; business
model focused on project
management rather than
direct execution
EPC players in India
Currently, the Indian EPC sector, with its rising prominence and changing dynamics, has more than 150 participants and a multitude
of stakeholders. Players have carved out a niche for themselves and have developed their reputation, based on their sector focus.
Some have also diversified their operations in other sectors, thereby segregating the entire EPC space, based on operational
segments.

Segment Major domestic players Major foreign players Insight
Power EPC
General Power
EPC and Power
Transmission
General Power EPC
BHEL, Larsen & Toubro Ltd., Tata Projects
Ltd., BGR Energy Systems Ltd., Gammon
India, Gayatri Projects Ltd., McNally
Bharat Engineering Co. Ltd., Shriram EPC
Ltd., Tecpro Systems Ltd., Cethar Ltd.
Power Transmission
EMC Ltd., Jyoti Structures Ltd., GET
Power Pvt. Ltd., KEC International Ltd.,
Kalpataru Power Transmission Limited,
JMC Projects (India) Ltd., Techno Electric
& Engineering Company Ltd., Unitech
Transmission
Doosan Power Systems,
Dongfang Electric Corporation,
Harbin Power Engineering Co.
Ltd., KEPCO, ThyssenKrupp
Industries India, Alstom T&D
India, Alstom Projects India
Limited, Mitsubishi Heavy
Industries, Ansaldo STS, Babcock
& Wilcox
Market segmented into
niche areas; few players
with presence across both
BTG and BoP.
Dominated by equipment
manufacturers who have
forayed into EPC as
forward integration.
Global players entered
the market in JV with
Indian players to enhance
their equipment business.
Specialised EPC
Marine, Industrial,
Railways,
Tunneling, Mining
etc.
Shriram EPC Ltd., Coastal Projects Ltd.,
Navayuga Engineering Company Ltd.,
Hindustan Construction Co. Ltd., Patel
Engineering Ltd., Afcons Infrastructure
Ltd., Simplex Infrastructures Ltd., ,
McNally Bharat Engineering Co. Ltd.,
Petron Engineering Construction Ltd.,
Kalindee Rail Nirman (Engineers) Limited,
AMR Construction Ltd.
Uhde India Ltd., Toyo Engineering
India Ltd., Continental
Engineering Corporation, Marti
India Private Ltd., AG Group,
Samsung Engineering, ITD
Cementation India Ltd.
Comprises niche players
in segments such as
hydel tunnelling, marine
construction, or industrial
construction
The Indian EPC sector is marked by the presence of both Indian and international players.
International expansion by Indian EPC companies
Over the years, Indian EPC players have developed their in-house design, engineering and construction capabilities to bid and
execute large and complex EPC projects. Moreover, EPC players have secured overseas EPC contracts to mitigate the risk of subdued
domestic market and increased competition in the past few years. A majority of these players have expanded into the markets of
Middle East and Africa besides South East Asia and South Asia.

In the Middle East, the Indian companies are primarily working in roads and highways, metro rail systems, desalination plants and
oil and gas (upstream and downstream projects). In African countries, these companies execute projects in power (generation and
transmission), mining and related infrastructure, railways and residential construction. International expansion of major Indian
players has been mentioned below:
EPC player Geography of expansion Focus areas
Larsen & Toubro Ltd.7
The UAE, Saudi Arabia, Kuwait, Oman,
Qatar, Singapore, Malaysia, Indonesia,
Kenya, Mozambique, Algeria, Russia,
Bahrain, Sri Lanka, Bangladesh, Jordan,
Thailand
Engineering and construction projects
in power transmission and distribution,
metro rail, expressways and highways,
railway infrastructure (civil and track,
electrical and mechanical, signalling and
telecom packages) as well as residential
construction
Engineers India Ltd.8
The UK, the UAE, Saudi Arabia, Malaysia,
China, Italy
Oil and Gas, petrochemicals, solar power,
water and waste management, fertilizer
plants
Gammon India Ltd.9
The US, Canada, Malaysia, Oman,
Bangladesh, Bhutan, Nepal, Libya, Iraq,
the UAE, Nigeria and Sri Lanka
Water supply, power plants, highways,
desalination plant, bridge and jetty
construction
IVRCL10
Nepal, Sri Lanka, the Middle East , the
UAE, Kenya and Africa
Hydroelectric power plant, residential
project, water reservoirs, canals and non-
residential buildings
AFCONS Infrastructure Ltd.11
Mauritius, Oman, Indonesia, Kuwait,
Qatar, Madagascar, Jordan, Liberia,
Yemen, the UAE, Bahrain
Industrial EPC, chemical plants, cement
plants, mining projects, highway
construction
Tata Projects Ltd.12
South Africa, Mauritius, Kenya, Qatar, the
UAE
Third-party inspection services for power
T&D projects, power transmission lines,
oil and gas terminals
Ramky Infrastructure13
Singapore, the UAE and Gabonese
Republic
Infrastructure development, waste
management, environment and property
development
Shapoorji Pallonji & Co. Ltd.14
The UAE, Kuwait, Ghana, Qatar, Saudi
Arabia, Algeria, Gambia, Nigeria, Sri
Lanka and Kenya
Contracting services for residential,
commercial, industrial, hospitality, health
care, and mixed use buildings
Punj Lloyd15
Indonesia, Malaysia, Qatar, Kazakhstan,
Oman, Turkey, Singapore
Offshore platforms, gas field
development, oil and gas pipelines,
storage tanks and terminals
Essar Projects Ltd.16
Singapore, the UAE, Zimbabwe, the US,
Papua New Guinea
Marine facilities and storage terminals,
industrial plants, pipelines, steel plant,
roads, water and hydroelectric power and
airport projects

Overseas expansion has not only given Indian EPC players an opportunity to diversify their business but also to compete at a global
level and develop critical capabilities in design, engineering, supply chain management, project management, risk identification
and mitigation. India’s EPC players, with rising capabilities and diverse experience, are gearing up for significant opportunities,
originating from significant investment outlay of the Twelfth Plan. Moreover, the new government’s increased focus on infrastructure
development augurs well for the growth of the EPC sector.
Global players’ EPC strategy in India
Region Sector Focus EPC Strategy
Europe ►► Highways
►► Oil and gas
►► Thermal power
►► Power transmission
►► Ports
►► Airports
►► Buildings
►► Focused on civil contracting for highways and dredging
►► Focused on design and project management in Oil and gas EPC
►► Undertakes entire construction work including civil work for thermal
power and solar power projects
►► Strong presence in supply of power transmission and distribution
equipment
►► Expressed interest in participation in construction of greenfield airports
China/ Taiwan/
Hong Kong/
Singapore/
Malaysia
►► Railways
►► Solar power
►► MRTS
►► Waste water management
►► Real Estate
►► Undertakes entire construction activity and O&M services for thermal
power projects
►► Key supplier of power equipment including BTG, solar modules and
transmission equipment
►► Focused on construction of metro station, tunnelling works and supply of
metro coaches
►► Considering to partner with Indian companies for development of high
speed rail projects
►► Waste water management — complete services from design, engineering,
construction and installation of facilities
Middle East ►► Buildings
►► Power
►► Executing building contracts in partnership with Indian players
►► Undertake entire construction work including civil, mechanical, electrical
etc. for thermal power projects
Japan ►► Railways/high-speed rail
►► MRTS
►► Solar power
►► Undertakes entire construction works and O&M services for thermal
power projects
►► Operating through owned subsidiaries or formed a JV with Indian
companies for supply of BTG and T&D related equipment
►► Railways — Engaged in electrification works, civil works, track works,
signalling supply of railways and metro coaches
►► Considering to participate in development of high-speed rail projects

Opportunities
for EPC
business in
India
2.

2.1 Opportunity in the Twelfth Five Year Plan (Twelfth Plan)
The Twelfth Plan envisions investment of approximately INR56.3 trillion in Indian infrastructure between 2012 and 2017. This,
in turn, is expected to offer significant opportunities for EPC players across various sectors17
. During the period, the construction
opportunity in the infrastructure sector is estimated to be around INR26.7 trillion. Significant investments in infrastructure projects,
along with the revival in the real estate sector and growth in industrial capital expenditure are likely to boost the construction
industry and act as a catalyst for growth of EPC companies in India18
.
18,202
9,694
9,439
5,218
5,044
2,550
1,978
1,489
1,242
877
584
6,917
6,301
4,070
3,783
1,683
989
968
944
372
368
292
Power
Roads and
Bridges
Telecommunications
Railways
Irrigation and
Watershed
Water supply and
Sanitation
Ports and
Inland Water Transport
Oil & Gas
Mass Rapid
Transit System
Airports
Storage
10,0000 20,000
Total planned investment: INR56,316.9 billion
Total planned investment in
12th
Plan (INR billion)
Construction opportunity*
Planned investments and construction opportunity in infrastructure in the Twelfth Plan
* Construction opportunity comes from weighing total investment with construction intensity in each sector. For construction intensity in each sector, please see annexure
Source: Twelfth Five Year Plan document, Planning Commission; EY analysis
Construction opportunity in the Twelfth Plan
The construction intensity, which varies significantly across infrastructure sectors, impacts the opportunity for EPC players more
directly than the investment planned. While construction-intensive sectors such as roads, railways and MRTS together account for
28% of infrastructure investments, they contribute nearly 42% to the total EPC opportunity. On the other hand, the telecom sector,
which has the third-largest investment in infrastructure, accounts for only 3.5% of the total EPC opportunity19
.

Twelfth Plan focuses on private investment
Going forward, the Planning Commission has projected that investment in infrastructure will more than double at INR56.3 trillion
during the Twelfth Plan from the Eleventh Plan. The private sector is expected to contribute nearly half of the total investment.
Source: Twelfth Five Year Plan and Eleventh Five Year Plan, Planning Commission
The Government has been driving policy reforms to enable this, making way for ample opportunities for EPC players. It has
recognised infrastructure as one of the core sectors to revive the economic growth. The Government is taking initiatives to remove
the hurdles in the way of ongoing projects along with inviting re-bids for some of them. In addition it is envisaging new projects
across sectors to modernise the infrastructure of the country. In order to ease the liquidity crunch, the Government is promoting low-
cost, long-term funding mechanism besides allowing for more External Commercial Borrowing (ECB)20
.
It has recently relaxed the process of obtaining environmental clearances for rail projects in border areas, which is expected to fast-
track the construction of railway lines in these regions21
. Recently, the Government has diluted the Environment Impact Assessment
(EIA) notification of 2006 to exempt many categories of buildings and construction projects (with built-up area of more than or equal
to 20,000 sq. m. but less than 150,000 sq. m.) from seeking environmental clearances22
. Furthermore, it plans to set-up regulators
in the road and coal sectors to handle disputes efficiently and reduce the time and cost overruns and quickly ramp-up capacities in
these sectors.
2.2 Key infrastructure sectors: investment scenario
Roads and highways
The highways sector has reported significant growth in the past decade driven by large-scale private participation under the
Government’s flagship National Highway Development Project (NHDP). The road network supports approximately 65% of freight and
80% of the passenger traffic in the country.
Investment in infrastructure, % private of total investment
Actual investment
INR 9,161.8 billion
22%
0
10,000
20,000
30,000
40,000
50,000
60,000
10th
Plan
Actual investment
INR 23,859.8 billion
37%
11th
Plan
Actual investment
INR 56,316.9 billion
48%
12th
Plan (P)
Private Public

Road network in India
Type of road Total length (in million km)
National highways/ expressways 0.09
State highways 0.14
Total road length 4.86
Source: Energy, Infrastructure and Communications, Chapter 11, Economic Survey 2013-14
Emergence of EPC projects in the last two years
Various developments since the beginning of FY13 began to hinder the otherwise smooth operations in the sector. The lower-than-
expected growth of the economy and traffic, high interest rates, the inability of developers to raise funds in sluggish capital markets,
significant delays in securing regulatory approvals and new land acquisition rules all have added to the woes of the sector. In such a
scenario, it began to witness investors’ apathy and the Government could only award 1,116 km (11 projects), compared to its target
of 7,464 km through the BOT route in FY1323
. Moreover, the total projects awarded in 2013–14 remained at around the same level
of 1,436 km24
. Similarly, during April-July 2014, out of the 10 projects put up for bidding by NHAI, eight failed to attract any bidder.
Therefore, NHAI was able to award only around 190 km during the same period.
The current Government has approved more than INR400 billion worth of road projects to be implemented in the next two-three
years25
. The EPC model is expected to be the preferred mode of project execution in the near term. Consequently, the Government
plans to award around 2,300 km of highway projects with a total project cost of more than INR150 billion through the EPC route
in 2014–1526
. In fact, in October 2014, the NHAI floated tenders for 14 road projects worth INR290 billion and majority of these
projects will be awarded on an EPC basis27
. It has revived another 34 road projects worth INR260 billion, which will now be executed
through the EPC mode instead of the original plan of PPP mode of execution28
.
EPC route has become the preferred mode of award for state road projects as well. A total of seven key projects, covering more than
164 km and worth INR27 billion were awarded during 2013–14. One of the biggest EPC projects — the INR12.9 billion AIIMS-Digha
elevated corridor project in Bihar — was awarded to Gammon India Limited in September 2013 by the Bihar State Road Development
Corporation.
Around 50,000 km of rural roads have been approved for upgrades under the Pradhan Mantri Gram Sadak Yojna II across the
country. This represent an EPC opportunity worth INR470 billion. Similarly, projects covering 6,295 km of road length will be
awarded under the Special Accelerated Road Development Project-Northeast (SARDP-NE). In addition, a road length of 1,120 km will
be upgraded under the National Highways Interconnectivity Project29
.
New government’s multipronged approach creates plethora of opportunities for EPC players
The new Government has laid-down its agenda to resuscitate the infrastructure development given the growing need to revive
economic growth and fast-track stalled projects. Consequently, the Government has reviewed more than 250 road projects worth
around INR600 billion, which are stuck, mainly due to reasons such as land acquisition and environment and forest clearance
issues30
. It is looking to accelerate the process of regulatory clearances and plans to achieve a target of building 30 km of highway
a day in the next two years31
. Keeping the target in mind, it has streamlined execution of stalled highway projects worth INR1,500

billion some of which will undergo re-bidding. It also contemplates preparing Detailed Project Reports (DPRs) for another INR2,000
billion road projects, obtaining environment and forest clearances itself and acquiring the land before bidding them out. These
initiatives are expected to revive the interest of private players to bid for projects and speed-up their execution32
.
In the wake of paucity of funds in the domestic market, the Government has decided to put all public-private partnerships (PPPs) in
the road sector on hold for two to three years, which put the focus on new highway construction through the EPC route33
. In order
to increase the flow of funds to the sector, the Government envisages setting up a finance corporation with a corpus of INR1,000
billion, in collaboration with Japanese investors34
. It has also increased allocations to the road sector under the Union Budget
2014–15 to INR380 billion, which is 13% higher than the revised estimates for 2013–14.
It intends to accelerate work on the freight and industrial corridors and to revive the Sagarmala project (rail and road connectivity to
ports in coastal regions) signifies a growing opportunity pie for EPC players35
. Moreover, a new committee has been formed according
to directions of the Cabinet Committee on Economic Affairs (CCEA), which plans to make suitable changes in the Model Concession
Agreement (MCA) for road projects. Currently, the committee is reviewing norms on exit and substitution, change of mode from
build-operate-transfer (BoT) to EPC and dispute resolution mechanism in the existing MCA36
.
Railways
The Railways sector, with high construction intensity of around 78%, offer EPC opportunities worth INR4.1 trillion during the Twelfth
plan period37
. However, only a few key projects were completed in 2013. These include the 26 km Udhampur-Katra new line and the
21 km Harmuti-Naharlagun new line, providing rail connectivity to Katra in Jammu & Kashmir and Itanagar in Arunachal Pradesh.
Meghalaya got its first rail connectivity with the completion of Dubhnoi-Mendipathar new line in August 2014. The 19.75 Kms line
was completed at a cost of INR2.5 billion38
.
Rail network in India
►► Network length: 64,600 km
►► Third largest in the world by length
►► Largest passenger carrier in the world
►► Fourth-largest freight carrier in the world
Source: Indian Railways
Investment phasing and funding sources for railways till 2032 (INR billion)
Budgetary
support
Internal sources Borrowing PPP Total
Twelfth FYP (2012-17) 1,940 1,050 1,200 1,000 5,190
Thirteenth FYP (2017-22) 4,050 1,510 1,600 2,030 9,190
Fourteenth FYP (2022-27) 4,790 3,550 2,330 1,370 12,040
Fifteenth FYP (2027-32) 1,070 7,120 0 710 8,900
Source: Indian Infrastructure, January 2014; National Transport Development Policy Committee (NTDPC Report)

Dedicated Freight Corridor (DFC)39
The project, which aims to addresses capacity constraints on high density networks and reduce the unit cost of transport, is being
implemented by Dedicated Freight Corridor Corporation of India Limited. The project comprises two corridors in Phase I — the
eastern corridor and the western corridor. The total completion cost is estimated at US$16 billion, which will be funded at a debt-
equity ratio of 2:1. The western DFC will be completely funded by the Japan International Cooperation Agency (JICA) while the
eastern DFC will be funded by the World Bank, the Central Government and PPP.
As of December 2013, more than 94% of the land acquisition has been completed. All environmental and wildlife clearances
have also been received. Civil contracts have been awarded for more than 1,100 km length and work is in progress. Tenders for
civil works for around 1,250 km and system contracts (electrification, signaling and telecom) have been invited. Mechanised
maintenance contracts have also been planned. With regard to funding, a total loan of US$10.93 billion (US$2.73 billion from the
World Bank and US$8.2 billion from JICA) has been committed and loan agreements of US$9.18 billion have been signed.
The DFC offers multiple business opportunities in construction, development of economic zones around freight corridors, high
capacity rolling stock for the DFC and the setting up of multi-modal logistics parks. It will also provide opportunities in civil and
track works of 1,250 route km (double line), electrification works of 2,250 route km (double line) and signaling and telecom works
over 2,250 route km (double line) by the end of FY15.
Going forward, four more corridors are planned to be undertaken in the future — 2,000 km east-west corridor (Kolkata-Mumbai),
2,173 km north-south corridor (Delhi-Chennai), 1,100 km east coast corridor (Kharagpur-Vijayawada) and 890 km southern
corridor (Chennai-Goa).
Traditionally, railway projects, including construction and doubling of new lines, electrification of tracks, signalling, construction
of stations and other ancillary units were executed on EPC basis. The new Government plans to increase private participation in
railways by awarding more projects through PPP route. This is expected to attract funds and lead to increased generation of EPC
business.
Creation of fixed assets during the Twelfth Plan (2012-2017)
Type of line Physical target (km)
New line 4,000
Eastern and Western Dedicated Freight Corridor 3,338
(double line except 400 km)
Gauge conversion 5,500
Doubling 7,653
Railway electrification 6,500
Source: Volume II, Economic Sectors, Twelfth Five Year Plan (2012-2017), Planning Commission

Modernisation of Indian Railways presents immense opportunities for EPC players
Keeping in view that growth plans cannot be achieved without creating adequate capacity and modernizing the existing
infrastructure, Indian Railways has set capacity augmentation targets in the Report of the expert group for modernisation of Indian
Railways. The key recommendations of the report, which was released in 2012 are:40
►► Modernisation 19,000 km of existing tracks by building strong and robust tracks capable of carrying heavy freight trains at 25
tonne axle load and achieving increased speeds of 75/100 kmph. The tracks on A & B routes should be fit for passenger speeds
of 160/200 kmph.
►► Strengthening of 11,250 bridges to sustain improved loads at increased speeds
►► Implementation of Automatic Block Signalling on A and B routes with Train Management System
►► Modernisation of 100 major stations
►► Development of 34 multi-modal logistics park to provide integrated transport infrastructure facilities
►► Construction of North-South, East-West, East-Coast and Southern DFCs (6,200 Kms) in the next 10 years in addition to Eastern
(Ludhiana-Dankuni) and Western (Mumbai-Delhi) Dedicated Freight Corridors (DFCs)
The Twelfth Plan, in combination with the Indian Railways modernisation plan, exhibit large-scale opportunities in the EPC sector.
The new Government is pushing for long-awaited policy reforms
The railways sector has long been waiting for much-needed reforms. In the absence of private participation, it could not keep
pace with the ever-increasing requirements of a fast-growing economy such as India. In addition, there is a pressing need for the
development of new generation infrastructure to cater to the needs of increased speed, improved safety and convenient mode of
transportation. Following are the key initiatives taken by the new Government in this direction:
►► ►The new Government looks to set up an independent Rail Tariff Authority to advise it on fixing of passenger and freight fares
of railways. The authority will rationalise the tariff and freight rates and is expected to bring down cross subsidisation between
different segments. It is expected to help in generating internal resources for railways, which would be utilised to enhance
capacity41
.
►► ►It has increased passenger fares by 14.2% and freight rates by 6.5% before the Railway Budget FY1442
.
►► It is stressing on capacity augmentation and development of next generation infrastructure to meet future growth requirements.
It plans to launch a Diamond Quadrilateral project to set up a network of high-speed trains; freight corridors with specialised agri-
rail networks for perishable agricultural products and new railway lines in coastal and mountainous regions.
►► It has allowed 100% FDI in high-speed train systems, railway electrification, signaling systems, freight terminals, passenger
terminals and infrastructure in industrial parks such as railway line and sidings43
.
►► On the regulatory front, the Government has set up a committee under Bibek Debroy in September 2014 to restructure the
Railway Board to separate the functions of policy formulation and implementation44
. The committee, who is expected to submit
its report within a year, will recommend steps to mobilise resources for major projects and help set up a Rail Tariff Authority.

►► The Government aims to complete 34 ongoing railway projects in the northeast over the next five to six years with an additional
investment of INR350 billion. These projects are important from the point of view of defence and will provide connectivity to
remote-regions45
.
Moreover, the new Government is also looking to decentralise the authority from the Railway Board to the zones, incentivizing
General Managers for timely completion of projects and leveraging large tracts of railway land to raise funds to support the
completion of various projects. It is expected that the zones will be accorded the power to clear tenders to expedite the project
selection and approval process46
.
Development of high-speed rail corridors (HSRC) one of the top priorities of the Government
High-speed rail projects are the need of the hour driven by growing demand for speedy mode of travel between major cities and
business hubs. The recent boom in the aviation sector and its sustained growth; rising disposable incomes and the willingness of
passengers to pay premium for reduced transit times between cities have driven the idea of such rail projects. Considering this,
the Ministry of Railway launched the High Speed Rail Corporation of India Ltd., a subsidiary of Rail Vikas Nigam Ltd. (RVNL) in
October 2013 to develop High Speed Rail (HSR) corridors in India to run passenger trains at speeds up to 350 km per hour. Six such
corridors (Delhi-Chandigarh-Amritsar, Pune-Mumbai-Ahmedabad, Hyderabad-Dornakal-Vijayawada-Chennai, Howrah-Haldia, Chennai-
Bangalore-Coimbatore-Ernakulam and Delhi-Agra-Lucknow-Varanasi-Patna) have been identified for technical studies on setting up of
HSRCs47
. The Railway Budget 2014–15 allocated INR1 billion to High Speed Rail Corporation of India Limited for starting high speed
rail projects.
The new Government has also short-listed nine corridors to run semi-high speed trains with a speed of 160–200 km per hour. The
identified corridors are Delhi-Agra, Delhi-Chandigarh, Delhi-Kanpur, Nagpur-Bilaspur, Mysore-Bengaluru-Chennai, Mumbai-Goa,
Mumbai-Ahmedabad, Chennai-Hyderabad and Nagpur-Secunderabad48
.
Enabling better freight movement
Furthermore, three critical coal connectivity lines that had been stuck due to land acquisition and environmental clearance issues, are
expected to be taken up on a fast-track basis. These include the 44 km Tori-Shivpur and the 53 km Shivpur-Kathautia railway lines in
Jharkhand, the 53 km Jharsuguda-Barpalli-Sardega line in Odisha and the 180 km Bhupdevpuir-Korichapan-Dharamjaigarh line in
Chhattisgarh. In September 2013, railways formed a new entity — the Railway Energy Management Company (REMC) — to manage its
renewable energy projects. In addition REMC is looking to set-up windmill plants and solar power plants, providing EPC opportunities
in the renewable energy space49
.

Airports
The airports sector has been reporting sustained growth due to factors including de-regularisation of the aviation sector leading to
participation of private sector airlines, sustained efforts to increase capacity at metro and non-metro airports, the launch of low-cost
carriers (LCCs) and the increase in tourism and business travelers.
Airport infrastructure in India
Type of airport No.
Total airports/ airstrips 464
Domestic and international airports managed by AAI 125
Civil enclaves/ defence airfields managed by AAI 26
Source: Airport Authority of India
Development of world-class international airports and their airport cities marked major milestones in the last
decade
During the last decade, the private sector played a key role in the development of airports in the metro cities of the country including
Delhi, Mumbai, Hyderabad and Bengaluru. Ease of revenue generation in these projects is one of the key reasons that make the
airport sector conducive to PPP:
►► It is relatively easy to collect user-charges given the profile of airport users. This makes it conducive to award these projects on
PPP mode.
►► It also provides an opportunity to earn significant non-aeronautical revenue through retail and real estate rights (shops, hotels,
malls, convention center, F&B outlets), which generate an additional revenue stream for the project.
Industrial corridors50
The Government has envisaged few industrial corridors between major cities and growth centres, which will fuel future economic growth in
the country by generating jobs, creating new industrial townships, smart cities and manufacturing zones. Subsequently, it has announced
setting-up a National Industrial Corridor Authority with an initial corpus of INR1 billion in the Union Budget 2014–15. The proposed
industrial corridors represent substantial opportunities for EPC players:
►► ►The proposed Visakhapatnam-Chennai corridor will pass through the seven coastal districts of Andhra Pradesh — Visakhapatnam, East
Godavari, West Godavari, Krishna, Guntur, Prakasam and Nellore before culminating in Chennai.
►► The Visakhapatnam-Chennai corridor envisages development of five industrial zones at Visakhapatnam, Kakinada, Machilipatnam,
Anantapur and Erpedu-Srikalahasti. The project also includes development of Kakinada port in East Godavari district besides providing
road and rail connectivity for freight movement to and from existing ports at Visakhapatnam, Nellore and Krishnapatnam.
►► The proposed 1,000-km long Mumbai-Bengaluru Industrial corridor has identified setting up two new industrial towns as early-bird
projects. The Government’s plans to generate around 12% of the country’s GDP along the corridor between two commercial towns,
would drive setting-up of many new cities, industrial towns and urban areas in future.
►► The Mumbai-Bengaluru corridor passes through Tumkur, where a national investment and manufacturing zone (NIMZ) has been
planned. The Tumkur NIMZ would be an integrated industrial township spread over 5,000 hectares.
►► The proposed Chennai-Bengaluru corridor, which will cover an area of 560 km spread across Karnataka, Andhra Pradesh and Tamil
Nadu will also see large-scale industrialisation besides creation of new cities and towns along the corridor. Three new smart cities
including Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka will be set-up in the proposed corridor.

In addition to these, the concept of an aerotropolis or airport city — a township built around an airport — is also gaining ground in
India. These have been planned at Hyderabad, Bengaluru and Cochin international airports by private developers. In September
2013, an aerotropolis at Durgapur Airport (a joint venture between four Indian companies and Singapore-based Changi Airports
International) was inaugurated in West Bengal.
In 2013–14, the biggest developments were the commissioning of Terminal 1A of Bengaluru airport and Terminal 2 at Mumbai
airport. The opening of these two terminals together added a capacity of more than 19 million passengers per annum to Indian
airports. While existing greenfield airports continue to perform well, there has been little progress on planned greenfield airports,
which have received in-principle approvals. Of the 21 greenfield airports, construction work has been completed on only two
(Durgapur and Shirdi). However, neither has commenced commercial operations51
.
Recent policy initiatives have brought some timely relief
The Government took two major policy initiatives in 2012 to improve the overall sentiment in the sector. Firstly, it has allowed FDI
of up to 49% in domestic airlines by foreign airlines (so far foreign airlines were not allowed to directly invest in Indian carriers for
security reasons, although 49% FDI by non-airline players was allowed). This is expected to facilitate equity infusion in the cash-
starved domestic carriers, which can be used further to expand their fleet and operations. This will also help in generating improved
revenues at airports with increased aircraft movement and passenger throughput. Following the easing of FDI policy, Malaysia’s
AirAsia has entered the Indian market in a joint venture with the Tata Group. Likewise, UAE-based Etihad Airways has acquired a 24%
stake in India’s Jet Airways for US$379 million. Secondly, the Government allowed the direct import of aviation turbine fuel (ATF) by
Indian carriers, which will result in significant cost savings for them.
Furthermore, in 2013, the Ministry of Civil Aviation (MoCA) allowed airlines to unbundle services and in turn, allowing them to
charge extra for blocking seats in advance and check-in baggage. The Government also plans to set-up Civil Aviation Authority (CAA),
which will replace the Directorate General of Civil Aviation (DGCA). The CAA will finance its functions through fees collected from
airline operators and will act as the regulatory body for civil aviation in the country. The CAA bill is currently under discussion with
the cabinet.
The RBI has included maintenance, repair and overhaul (MRO) operations in the airport in the infrastructure category. This will
facilitate ECB for the segment and is likely to boost development of these projects. The Airports Economic Regulatory Authority
(AERA) has released its guidelines for public consultation in July 2014. Once these guidelines are finalised, they will provide an
increased impetus to PPP projects in the airports sector.
Upcoming opportunities in the sector
A study by aviation consultancy Centre for Asia Pacific Aviation (CAPA) has estimated an investment requirement of approximately
US$40 billion in 50 greenfield airports by 2025 to address the under-penetration and capacity challenges at major airports in India52
.
The Government has proposed to build 17 new airports during the Twelfth Plan period, as well as 100 airports in small cities53
. The
Government plans to develop these new airports as no-frills airports with low cost of operation. The move is driven by an urge to
provide basic infrastructure in far-flung areas to act as a catalyst for future growth rather than having “world-class” airports. It is also
planning to develop 24 airports as domestic air cargo terminals to establish a national logistics network for rapid movement of cargo
goods54
.
Some of the key upcoming airports projects in the country include a greenfield airport at Navi Mumbai (at an estimated cost of INR32
billion to INR40 billion) and an international airport at Kushinagar in Uttar Pradesh (worth INR3.5 billion)55
. Other greenfield airports
slated for development include Pune, Kannur, Sriperumbedur, Bellary and Raigarh56
. India’s first private international greenfield
airport is being developed at Aranmula in Kerala at a cost of INR20 billion57
. Similarly, the Government of Goa has invited applications
from global companies seeking Request for Qualification (RfQ) for the development of a greenfield international airport at Mopa on
PPP basis58
.

Ports
Ports in India account for 90% of India’s overseas trade by volume and 70% by value59
. The report of the National Transport
Development Policy Committee, published in December 2013, estimated an increase in capacity and traffic at Indian ports to 1,662
million tonnes (MT) and 1,278 MT, respectively. With regard to long-term projections, capacity and traffic at Indian ports is estimated
at 3,989 MT and 3,068 MT, respectively in 2031–3260
.
Maritime infrastructure in India
Description No. Regulatory authority Governing law
Major ports 13 Union government Major Port Trusts Act of 1963, except for Ennore Port, which is administered by
the provisions of the Companies Act, 1956
Minor ports 186 State governments Ports Act, 1908, ‘Concurrent List’ in the Constitution of India
Investment targets and plans promise huge EPC potential
To meet traffic targets, an investment requirement of INR3,220 billion has been estimated for the development of the sector. In
addition, investment for the development of inland water transport (IWT) is projected at INR638 billion over the same period. An
investment of such proportion presents large-scale EPC opportunities in berth, jetty and quay construction; dredging requirements;
port infrastructure including installation of heavy-duty handling equipment; support infrastructure including railway sidings, road
connectivity and storage space61
.
Favourable regulations framed to encourage private investments
The Government undertook some major reform-oriented initiatives in FY13 and FY14, which helped the sector in achieving improved
investment and capacity enhancement. These include:
►► New policy guidelines for land management at Major Ports, 2014, which aim to help major ports leverage their land resources for
commercial advantage
►► New Tariff Guidelines for future projects have been established under Major Ports, 2013 (the tariffs for new port projects will be
determined by market forces, which could be a key factor in attracting private investment).
►► New guidelines for security clearances are set up, under which those granted for port projects will be valid for a period of three
years (this is expected to expedite execution of projects at major ports).
►► Capital dredging has been included in infrastructure sector lending to ease availability of funds for such projects (dredging helps
to enhance the capacity of a berth/terminal).
►► Streamlining of environment-related approval to reduce the gestation period (under this initiative, port trusts will be able to
submit all environmental clearances to operators that win bids rather than the latter acquiring these).
►► ►The recently announced policy initiatives such as online submission of applications for environmental clearances, availability
of 24x7 customs clearance facilities at 14 more ports are expected to play a major role in increasing the pace of project
implementation.
Considerable activity on the project front in FY14
Driven by policy initiatives and improvement in the global economy and trade, investment in the port sector revived in FY14. This
has helped the Government achieve its target of awarding 30 port projects in FY14. This entails a total investment of INR210 billion,
more than three times the total cost of projects awarded in FY1362
. The major projects awarded include two container terminals at
Source: “Maritime agenda: 2010 – 2020,” Ministry of Shipping, Government of India

the Jawaharlal Nehru Port Trust (JNPT) to Singapore’s PSA International Pte Ltd. and Dubai’s DP World, which will add 5.6 million
twenty-foot equivalents (TEU) container-handling capacity at a total cost of INR86 billion63
. Tuticorin port started cargo handling
operations at its Dakshin Bharat Gateway Terminal with a capacity of 600,000 twenty-foot equivalent units (TEUs). Visakhapatnam
Port Trust commenced work for the development of 6.39 MT west quay north berth project in June 201464
.
Emergence of new growth areas
►► IWT and coastal shipping: The new Government has emphasised on the development of these segments. It plans to develop
an Inland Water Transport Grid, covering around 4,500 km., on the lines of National Highways grid65
. In a key announcement,
the Union Budget 2014–15 allocated INR42 billion for the Jal Vikas Marg project for the development of National Waterway-1
between Allahabad and Haldia.
►► ►Port-based special economic zones: The Government has formulated plans for the development of new port-based special
economic zones (SEZs). Kandla port and JNPT have been identified as part of this plan. The work on the JNPT SEZ has started in
August 2014 and the Kandla SEZ has also received in-principle approval.
►► Port connectivity projects: The Government has proposed to award 16 new port projects this year with a focus on port
connectivity. It has also allocated INR116.3 billion for the development of Outer Harbour Project in Tuticorin Port for Phase 166
.
►► ►Corporatisation of ports: The Government is also likely to push corporatisation of ports and move towards free market pricing
of tariffs at major ports. The process for appointment of a world class consultant to come out with draft regulations has been
initiated67
.
►► ►Multiple land use: Commercial utilisation of land under the new land policy guidelines for major ports, 2014 opens up new
EPC opportunities68
. Furthermore, the Government has planned the development of a port, based on the ”landlord model” at
Vizhinjam. Under this model, port estate development rights have been granted to the developer selected through the global
bidding process. The model allows commercial use of 30% of land available with the port in order to cross-subsidise the project
and reduce the requirement for VGF. This forms a part of the new port Model Concession Agreement (not yet approved) for minor
ports. Going forward, the Mahanadi Deep River Port in Odisha, the Dugarajpatanam Port in Andhra Pradesh and the Sagar Island
Port in West Bengal are expected to be developed through the PPP route, based on the landlord model69
.
Mass Rapid Transit System (MRTS)
Primarily funded by government sources through the EPC route, investment in MRTS is estimated to exceed INR1.0 trillion in the
Twelfth Plan, with the private sector contributing more than 40%.
Considerable activity on the project front in FY14
In June 2014, line 1 of the Mumbai metro started operations. In the same month, the 3.2 km stretch of Delhi Metro Phase-III became
operational. Trial runs are being conducted in Jaipur, Chennai and Hyderabad metro projects while network expansions of the
Bengaluru and Gurgaon metro projects have also been sanctioned. India’s first monorail system also started operations in Mumbai70
.
Furthermore, the foundation stone of Nagpur metro project was recently laid by the Prime Minister in August 2014.
Urban public transport gaining ground in many cities
The Ministry of Urban Development (MoUD) has estimated a total expenditure of approximately INR2.0 trillion to develop urban
public transport by 203171
. MRTS projects, such as metro rail are usually deployed in cities with population of more than 1 million.
The number of such million-plus cities in India is expected to increase from 53 in 2011 to 85 in 202172
. In order to cater to the

growing need of fast, safe and convenient transport, many such cities have planned metro and monorail projects by 2020 such as
Ahmedabad, Bengaluru, Hyderabad, Chandigarh, Chennai, Delhi, Jaipur, Kochi, Kolkata, Lucknow, Mumbai and Patna73
.
The MoUD is working on the standardisation of metro rail projects in the country, and has formed six sub-committees looking after
different aspects of the metro. Although the MRTS projects are primarily EPC contracts, the GoI has also begun to consider the PPP
model. However, PPP projects have been hit by relatively more roadblocks and delays. India’s first PPP-based rapid metro rail started
its operations in Gurgaon in November 2013 after a delay of around 10 months74
.
The new Government’s plan to establish 100 new smart cities bodes well for the segment as all these cities will have one or the
other form of the MRTS for efficient transportation and traffic management. The Union Cabinet has recently approved the phase-I of
Ahmedabad metro rail project worth INR107.7 billion, which covers a 35.9 km route75
.
Power
EPC in the power sector is broadly divided in two parts — power generation and transmission and distribution (T&D). Power
generation is further divided into boiler, turbine, generator (BTG) and balance of plant (BoP). A majority of Indian BTG manufacturers
have forayed into the EPC segment as a forward integration of their capabilities. Most Indian BoP players have evolved from general
civil contractors, leveraging their competence in civil works. Foreign players, especially Chinese and Korean, have adopted the JV
route to bid for super critical boilers in the Indian power EPC market76
.
Sector has achieved significant capacity and reduced deficit
Robust economic growth and enhanced industrial activity has significantly increased the demand for power in the country. During
2011–14, India has increased its installed generation capacity by a CAGR of 12% to 253 GW, with the share of the private sector
rising from 23% to 36%77
. However, with the current power deficit at around 4%, the Government has planned to further augment
generation capacity78
.
Taking actions to tackle issues in thermal power generation
Coal shortages and the Supreme Court’s recent verdict of de-allocating 214 coal blocks allotted since 1993 have raised challenges
for existing and upcoming projects79
. In order to alleviate the situation following the cancellation of coal blocks, the Government
has just released the draft-guidelines on e-auction of 74 of the de-allocated coal blocks. The e-auction process will commence on 11
February 2015 and reallocation of the blocks will be completed by 15 March 2015 according to the Supreme Court guidelines80
.
Furthermore, the Government has been pushing reforms in the sector for the last 2−3 years. In the wake of the coal shortage, the
Cabinet Committee on Economic Affairs (CCEA) had directed Coal India Limited (CIL) to sign 172 fuel supply agreements (FSAs) with
power providers for a capacity of 78 GW, most of which were executed as of 1 October 201481
.
Regulations in the sector have improved in the last few years
One of the biggest initiatives recently announced is the integration of the power and coal ministries, which would align the goals of
various energy ministries and facilitate coordination between them. The Ministry of Environment and Forests (MoEF) has removed
various provisions needed for acquiring clearances for power projects, to streamline the process. The Government has also decided
to expedite the implementation of critical rail connectivity projects for coal movement in Jharkhand, Odisha and Chhattisgarh, which
could potentially yield up to 200 million tons per annum (MTPA) of coal distribution by 2021–22.

Meanwhile, the government has increased its focus on hydroelectric energy
The Government has also been increasing its focus on hydroelectric and renewable sources of energy, which account for
approximately 30% of the country’s power source82
. Approximately 14.4 GW of hydroelectric capacity is under construction; most of
it is coming up in the North and North-East regions, which have been facing relatively high power deficit than others. Key upcoming
projects include the 2.0 GW Subansiri project in Arunachal Pradesh and the 1.2 GW Teesta-III project in Sikkim83
.
Private investments in T&D to increase
In the T&D segment, the southern grid was synchronised with the national power grid in FY14, with the commissioning of the 765-
kV single-circuit 208-circuit km (ckm) Raichur-Solapur transmission line, thereby achieving the one nation-one grid-one frequency
system84
.
►► The Ministry of Power (MoP) has further approved nine new T&D projects with an aggregate cost of more than INR125 billion for
the construction of high capacity lines carrying up to 2.1 GW each and construction of new 765-kV and 400-kV substations; this
is expected to give a major push to the private sector85
. The projects include 125-km Gadarwara power plant −Jabalpur line, 300-
km Warora-Parli line, 1,150-km Raipur-Rajnandgaon line and 223-km Vindhyachal - IV & V STPP, Sasan UMPP and Chhattisgarh
IPPs-Gwalior line.
►► State governments have also come up with T&D projects, including 170-km Suratgarh TPS-Bikaner line and 169-km Bikaner-Sikar
line in Rajasthan.
►► In November 2014, the Government has planned to auction eight T&D projects worth INR530 billion, which includes a 2,500-km
long high capacity evacuation link between Chhattisgarh-Tamil Nadu worth INR268.2 billion, a INR85.7 billion Maharashtra-
Telengana-Andhra Pradesh link, a INR70.3 billion transmission system strengthening scheme beyond Vemagiri in Tamil Nadu and
a INR44.4 billion Rajasthan-Punjab link.86
►► The Ministry of Finance approved the INR2.0 billion project to strengthen Delhi’s T&D network.87
►► The Board of Directors of the Power Grid Corporation of India Limited (PGCIL) approved two T&D projects worth INR10.5 billion,
which includes sub-station works associated with system strengthening in the southern region for import of power from the
eastern region.88
►► In October 2014, the Government approved a comprehensive scheme of INR47.5 billion to strengthen T&D system in Arunachal
Pradesh and Sikkim. The scheme has been prepared by Central Electricity Authority (CEA) in consultation with PGCIL to lay high
capacity transmission lines and augmenting the existing capacity.89
►► Other EPC opportunities would also arise from performance improvement projects such as measures announced to reduce
Aggregate, Technical and Commercial (AT&C) losses to below 15% level.90
Renewable energy
India’s renewable power generation capacity has more than doubled during the past eight years. The share of renewable energy in
the total installed capacity has increased from 7.8% in FY08 to 12.6% in FY14. The installed renewable energy capacity touched
31.7 GW in August 2014. The Ministry of New and Renewable Energy (MNRE) has proposed to tap the country’s renewable energy
potential to develop power generation capacity of 100 GW by 2019 from 31.7 GW currently91
.

The Government is incentivizing initiatives in the solar sector at all stages of development
Solar energy is an important yet underutilised resource in India, with a potential of 5,000 trillion kWh of energy per year. The
Government’s flagship solar power program, Jawaharlal Nehru National Solar Mission (JNNSM) has set a target of having 20 GW of
solar grid capacity by 202292
. Moreover, the Government has increased the target of phase-II, batch-II bidding to 3,000 MW from the
original 1,500 MW. The bidding for 3,000 MW will take place in three tranches of 1,000 MW each for a single destination state at one
time93
.
Furthermore, the MNRE has introduced the “Solar Cities” programme with a roadmap to guide cities in tapping the city’s solar energy
potential and simultaneously reducing the demand for conventional energy by 10%. Out of the 60 cities identified, 46 cities have
been granted sanctions by the end of June 2014, which includes financial assistance of up to INR5 million for each city, depending
on its population and initiatives undertaken by the local administration. In addition, a number of initiatives taken by the Government
are expected to further drive EPC sector’s growth in this segment:
►► The Indian Renewable Energy Development Agency (IREDA) is expected to disburse more than INR75.0 billion during FY15–17
for solar-related projects. In FY14, IREDA disbursed approximately 2.7 billion, which accounted for 11% of its total lending to
renewable projects. It plans to increase this proportion to more than 60% in the next three years.94
►► The FY15 budget has allocated funds to the tune of INR5.0 billion to set up mega solar power projects in Rajasthan, Gujarat,
Tamil Nadu and Jammu & Kashmir and INR4.0 billion for solar power-driven agricultural pump sets and water pumping stations.95
In Andhra Pradesh, the Government of India has planned to provide a grant of INR5.0 billion towards development of 2,500 MW
solar parks.96
►► The capacity addition of solar power in the year 2015 is expected to be 1,800 MW, more than double the capacity addition in
2014.97
►► ►NTPC plans to develop 3,000 MW of solar power in India, which includes 1,000 MW in Andhra Pradesh and 750 MW in Madhya
Pradesh and the rest in Telangana, Rajasthan and Odisha.98
Similarly, NHPC plans to develop a 50 MW solar power project at a
cost of INR4.0 billion in Uttar Pradesh.99
►► ►The Madhya Pradesh Government plans to invite bids for the INR40.0 billion ultra-mega solar power project (UMSPP) by March
2015, expected to be operational by 2017.100
►► ►The Government has agreed to provide INR13.5 billion from the National Green Energy Fund towards construction of evacuation
lines for solar and wind power projects in Andhra Pradesh.101
►► In October 2014, the Government of Rajasthan launched a new “Solar Energy Policy-2014” to pave the way for establishment of
25,000 MW solar power generation capacity in the state. The policy focuses on establishing solar parks in the state sector, private
sector and through PPP. A provision of INR1.0 billion has been made in the state budget of FY15 to promote power supply to
remote villages through local solar grid, standalone solar system and smart grid system.102
►► The IREDA has signed a Memorandum of Understanding (MOU) with the US Exim Bank to cooperate on clean energy
investment. Under the agreement, the US Exim Bank will provide medium and long-term loans totaling US$1 billion to finance
US technologies, products and services utilised during commercial development activities within the clean energy sector by
IREDA103
.

Wind sector is also poised to grow with similar incentives to promote projects
Given its vast coastline, India is well-suited for the development of offshore wind energy projects. In line with this, the Government
has entered a partnership with the Global Wind Energy Council (GWEC) in January 2014 to launch a four-year project to develop a
roadmap for offshore wind development in the country, with a focus on Gujarat and Tamil Nadu104
.
Additionally, the Government has extended the scheme to continue generation-based incentive (GBI) for grid interactive wind power
project for the Twelfth Plan period. Under the scheme, a GBI will be provided to wind electricity producers at the rate of INR0.5 per
unit of electricity fed into the grid for a period of at least four years and a maximum of 10 years with a cap of INR10 million per MW.
The total disbursement in a year will not exceed one-fourth of the maximum limit of the incentive, which is INR2.5 million per MW
during the first four years105
. Likewise, the Government restored the accelerated depreciation scheme for the wind energy sector in
2014 that allows for increased deductions toward deprecation in the early life time of an asset106
.
Government is also actively promoting external funding
Government has also taken steps to incentivise solar power generation to promote funding to the sector. It has secured a credit of
€200 million from the European Investment Bank (EIB) and €100 million from Agence Francaise de Developpement (AFD) to finance
renewable energy projects107
. The Government has also approved 100% FDI investment allowed in renewable energy generation
projects.
Oil and gas
The oil and gas industry consists of three segments — upstream, midstream and downstream. The upstream segment primarily
comprises companies engaged in exploration and production activities, while the midstream segment comprises companies operating
in storage and transportation space, and the downstream segment comprises companies engaged in refining and marketing of
petroleum products. India’s oil and gas industry continues to grow steadily, boosted by enhanced investments, increased production
and an increase in private participation.
Government initiatives expected to aid recovery from declining crude oil production
Like the power sector, the oil and gas sector is facing a supply deficit. The crude oil and natural gas production accounts for
approximately one-fourth and one-third, respectively, of the demand108
. The production shortfall in crude oil has led to a rise in
imports, which accounted for 83% of the crude oil supply in FY14, as compared to 80% in FY09109
. However, the Government has
made significant efforts to boost activity in the sector:
►► New natural gas pricing mechanism: The Government introduced a new natural gas pricing policy, which included increase in
natural gas prices by 33%. This is a positive step towards transition to market-based pricing. This is expected to attract more
private investment in the upstream segment, which is required to develop the country’s gas resources.110
►► Increasing focus on downstream segment: Several oil and gas companies have announced plans to increase downstream
capacity, in order to tap the increasing demand for petroleum products. Reliance Industries Ltd. (RIL) plans to expand its
petrochemical manufacturing capacity by developing an integrated gasification combined cycle (IGCC) project, and 1.5 MTPA
refinery off-gas cracker in Jamnagar, to utilise refinery off-gas from the IGCC unit and produce petrochemical compounds111
.
Bharat Petroleum Corporation Limited (BPCL) has planned to more than double its refining capacity in Bina, Madhya Pradesh to
15 MTPA and triple its refining capacity in Numaligarh, Assam to 9 MTPA112
. Indian Oil Corporation Limited (IOCL) has announced
to increase its refining capacity in Mathura, Uttar Pradesh from 0.8 MTPA to 1.1 MTPA, and is developing a greenfield 15-MTPA
refinery project in Paradip, Odisha113
. Hindustan Petroleum Corporation Limited (HPCL) plans to double its capacity in Vizag,
Andhra Pradesh to 15 MTPA114
. Through these policies, the Government not only aims to meet its growing domestic demand for

fuel, but also to strengthen its position as an exporter of petroleum products. Moreover it plans to double its gas pipeline network
to 30,000 km on PPP basis, which is expected to provide opportunities for the EPC segment.115
►► Building strategic crude oil reserves: The Indian Strategic Petroleum Reserves Limited (ISPRL), an SPV of Oil Industry
Development Board (OIDB), has planned to set up ”strategic” crude oil reserves with storage capacity of 5.33 million metric
tonnes (MMT) at 3 locations —Visakhapatnam, Andhra Pradesh (1.33 MMT), Manglalore, Karnataka (1.5 MMT) and Padur,
Kerala (2.5 MMT) by 2015, in order to improve the country’s energy security. The project is expected to cost INR114 billion
(development cost — 21%, crude oil cost — 79%) along with an annual operation and maintenance cost of INR0.9 billion116
. Going
forward, the government plans to increase this storage capacity to 18 MMT by 2020, which may include reserves in Gujarat and
Odisha.117
►► Approval of the shale gas policy: The Cabinet Committee on Economic Affairs (CCEA) has approved the shale gas policy.
According to the policy, initially, the two largest state-owned oil and gas corporations will be permitted to explore for and produce
shale oil and gas from inland blocks allotted to them before the 1999 New Exploration Licensing Policy (NELP). Subsequently,
shale oil and gas blocks will be offered to private sector companies through an auction118
. The Ministry of Petroleum and Natural
Gas (MoPNG) has also identified 46 new hydrocarbon exploration blocks in the tenth round of NELP (NELP-X), which will be
auctioned to oil and gas companies119
. The Government is expected to come up with a new natural gas pricing formula by the end
of 2014, incorporating both the interest of investors and public120
.
Emerging opportunities to lead the focus going forward
Coal Bed Methane (CBM): In the unconventional gas segment, the Government has increased its focus on exploration of CBM. It has
awarded 33 CBM blocks under four bidding rounds, 30 through international competitive bidding (ICB), 2 on nomination basis and 1
through the Foreign Investment Promotion Board (FIPB). Out of these, eight blocks are under development phase121
. Furthermore,
10 CBM blocks have been identified for offer under the proposed Uniform Licensing Policy (ULP)122
. The MoPNG has also allowed CIL
to evaluate its existing mines for presence of CBM wells to maximise production, which will then sell the CBM back to MoPNG.
Liquefied Natural Gas: On the LNG front, the 5-MTPA Kochi LNG terminal for re-gasification was commissioned, taking the country’s
total re-gasification capacity to 22 MTPA across Dahej, Hazira, Dabhol and Kochi. By FY17, it is expected that this capacity will
increase to 32.5 MTPA123
. In addition, other LNG terminals are being developed at Mundra, Gangavaaram, Ennore, Kakinada, Pipavav
and Mangalore, which are expected to add another 33 MTPA by 2019.
Real Estate
As a sector Real Estate is the second-largest employer and has one of the highest multiplier effects when it comes to contribution to
the GDP. It contributed close to 6.3% to the GDP in 2013 and this share is likely to go up to 13% by 2025 and in absolute terms the
real estate sector is expected to attain a market size of US$180 billion by 2025124
.
Buildings
India’s demographic composition has changed rapidly. Factors including swift economic growth and migration of the rural population
to urban areas are leading to a growth in urbanisation levels never seen before. Increased urbanisation is expected to lead to
emergence of more megacities and increased population clusters. The top 20–30 cities are projected to attract a significant portion
of the rural population, who migrate in search of job opportunities. By 2031, 43% of India’s population is expected to stay in urban
areas.125

Source: National Institute of Urban Affairs
The residential segment accounts for a majority of the Real Estate market and the estimated share stands at around 80%. Housing
shortage for urban India stood approximately at 18.8 million units and that for rural India stood at 43.6 million units, wherein 90% of
the shortage was for EWS and LIG segments (Source: NHB Presentation 2013).
Source: MOSPI.nic.in
Growth in urban population in India (2001-2013)
377
31.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
0
200
400
600
800
286
27.8%
2001 2011
405
33.0%
2016
433
35.0%
2021
535
38.0%
2026
600
43.0%
2031
Urban population (million) % urban population
0
0.5
1
1.5
2
2.5
3
3.5
AndhraPradesh
ArunachalPradesh
Assam
Bihar
Chhattisgarh
Delhi
Goa
Gujarata
Haryana
HimachalPradesh
Jammu&Kashmir
Jharkhand
Karnataka
Kerala
MadhyaPradesh
Maharashtra
Manipur
Meghalaya
Mizoram
Nagaland
Orissa
Puducherry
Punjab
Rajasthan
Sikkim
TamilNadu
Tripura
UttarPradesh
Uttarakhand
Westbengal
Andaman&NicobarIsland
Chandigarh
DadraandNagarHaveli
DamanandDiu
Lakshwadeep
Distribution of housing shortage across major states (in million units)

Opportunities in bridging the housing demand-supply gap
Urban areas are already facing severe housing shortage and infrastructure constraints. The total housing shortage for the Twelfth
Plan (2012–17) in the urban area has been estimated at 18.8 million units and for rural areas at 43.7 million units. Considering
the massive housing shortage in the country, the new Government has strongly emphasised on affordable housing in India. It
has recently announced its vision of “Housing for all by 2022”. There have been several measures proposed in the Union Budget
2014–15 and by the RBI in support of affordable housing126
:
Special boost to Affordable Housing
1. Announcements by RBI
In six metropolitan centers, loans of up to INR5 million (for houses costing up to INR6.5 million) and in other cities of INR4 million
(for houses with value up to INR5 million) will be eligible for priority sector lending. The RBI has also exempted long-term bonds
raised for funding affordable housing from mandatory regulatory norms such as CRR and SLR. These measures will result in
eased interest rates, reduced costs of funds and better liquidity.
2. Other initiatives
2a. External Commercial Borrowing (ECB) has been allowed for low-cost affordable housing projects
2b. A 1% subsidy is being provided on loans worth up to INR1.5 million on the purchase of houses costing less than
INR2.5 million
2c. Investment-linked deduction of capital expenditure in affordable housing has been increased to 150%
Other measures taken by the Government to support housing in the country
FDI norms for housing were relaxed through a reduction in built up area to 20,000 sq. m. from 50,000 sq. m. and minimum
capitalisation requirements to US$5 million from US$10 million. Investors are permitted to exit on completion of the project or after
three years from the date of final investment, subject to development of trunk infrastructure127
.
The Government of India has announced the setting up of 100 smart cities and has pledged a contribution of US$1.2 billion as seed
capital for the project. However, the investment in each smart city is estimated to be more than US$10 billion and therefore, presents
another opportunity for real estate development and the ancillary construction sector in India.
EY analysis for EPC Potential of Housing Shortage
Units Shortage (Pent up) 1,80,00,000
Carpet area (Per unit) 400
Loading on Carpet Area 30%
Built up Area 520
Construction Cost (Rs sq. ft) 1200
Total Project Cost (Rs cr) 11,23,200
Civil Work as a % of Total cost 80%
Cost of Civil Work (Rs cr) 8,98,560
Cost of Civil Work (US$ bn) 1,498
The EPC potential for just the pent up demand for urban housing shortage stands at almost US$1.5 trillion at current prices.

REITs law expected to drive maximum investor activity
The Securities and Exchange Board of India (SEBI) has approved the setting up of REITs in India in August 2014. In the recent union
budget, REITs had been proposed to be given pass-through status for the purposes of taxation, and this has been accepted by the
SEBI128
. REITs are likely to have a direct implication on the funding of real estate projects and the developer will get an alternate
funding avenue.
To sum it up, the opportunity lies in the fact that the construction stock requirement for residential, commercial and industrial
buildings will increase due to rapid increase in urban population and migration of people to upper tier cities. The commercial space
will grow in future due to economic growth and favourable demographics of a large earning population. The industrial growth will
be boosted by the construction of industry-centred cities on industrial corridors, including seven new cities along the Delhi Mumbai
Industrial Corridor (DMIC) as well as the cities planned on the Chennai- Bengaluru and Bengaluru-Mumbai industrial corridors.

Challenges facing the water supply Indicators
Inadequate coverage 64% of the urban population is covered by individual connections and standposts
Intermittent supply National average duration of water supply ranges from 1 hour to 6 hours; per capita water
supply in cities ranging from 37 litres per capita day (LPCD) to 298 LPCD for a limited
duration
Poor service quality Water leakages are 70%; non-revenue water (NRW) accounts for 50% of water production
Water utilities
The water supply situation in India faces several issues that indicate the urgent need for a complete systemic overhaul through
policy reforms and up-grading projects129
. The increase in urban population will increase the demand for water and wastewater
infrastructure.
Social and
economicSmart
governance
Smart energy and
environment
Smart
infrastructure
Smart
citizen
Smart
mobility
Smart building
and homes
Governance Physical
►► Grid automation
►► Flexible energy distribution
►► Metering management and demand response
►► Renewable energy
►► Alternate energy
►► Gas distribution management
►► High performance buildings
►► Energy efficiency
►► Security solutions
►► Home energy management
►► Integrated smart grid
►► Digital city services
►► E-Governance
►► Citizen
participation
►► Technology for
transparency
and efficiency
►► Integrated utilities with
distribution management
►► Sanitation and drainage
►► Solid waste management
►► Energy efficiency
►► Internet and telephony
►► Public safety
►► Video surveillence
►► Emergency
management
►► Citizen engagement – platforms
that allow citizens to interact
►► Integrated smart cards – access
public transit, building access,
car parks
►► Improved access
►► Integrated mobility
►► Traffic management
►► Green modes
Real estate for smart cities
Concept of smart cities: What is a smart city?
“Smart cities use information and communication technologies (ICT) and data to be more intelligent and efficient in the use of
resources resulting in cost and energy savings, improved service delivery and quality of life and reduced environmental footprint – all
supporting innovation and low carbon economy.
A city can only be efficient if all the components that go into making it function contribute individually to its overall performance with
the aim of increasing its efficiency.

The Centre’s activity on the regulations front has increased funding in the sector
In 2013, the Centre formulated the Draft National Water Framework Bill 2013, proposing a transparent approach to develop and
manage river basins and groundwater. Several water supply and wastewater projects are being funded by the Central Government
through budgetary resources. In addition, the Jawaharlal Nehru Urban Renewal Mission has approved 384 projects in the sector with
an additional central assistance (ACA) of INR211.4 billion.130
Although the second phase of the JNNURM has been scrapped by the
new government, the planned smart cities’ project would entail several new opportunities in this segment.
Sub-sector Projects
approved
Projects
completed
% projects
completed
Approved cost
(INR billion)
Total ACA
(INR billion)
Drainage/ storm water drains 76 29 38% 83.7 34.2
Water supply 186 71 38% 224.9 110.2
Sewerage 122 35 29% 157.6 75.5
Total 384 135 35% 466.2 220.0
Source: JNNURM Website
Large-scale investments are planned in the sector
The High Powered Expert Committee (HPEC) for estimating investment requirements for urban infrastructure services has estimated
a requirement of INR309 trillion for the 20-year period from 2012 to 2031. Water supply, sewerage and storm water drains account
for 24% (INR75 trillion) of the total investment requirement.
Capital expenditure estimates by sector (2012-2031)
Segment Investment in INR trillion(2009-10 prices) % share
Water Supply 32 10.4%
Sewerage 24 7.8%
Storm Water Drains 19 6.1%
Solid Waste Management 5 1.6%
Urban Roads 172 55.7%
Urban Transport 45 14.6%
Traffic Support Infrastructure 10 3.2%
Street Lighting 2 0.6%
Total 309
Source: ‘Report on Indian urban infrastructure and services,’ March 2011, The High Powered Expert Committee (HPEC) for estimating
the investment requirements for urban infrastructure services
Given the present scenario, the Centre would have to work with the state government departments to improve the capacity,
distribution network systems and operational technology to ensure the limitations are addressed in a timely manner. This presents a
considerable opportunity for EPC players in the sector.
The scope for private sector participation is poised to grow in quantum and breadth of services. In addition to the conventional
operations and maintenance, the private sector is now involved in asset rehabilitation, professional and technical consultancy on
metering, billing, reduction of non-revenue water (NRW) and recycling. EPC will continue to be the dominant mode of development
and maintenance works in the sector.

Main Title
Sector trends
3.

Engineering Procurement & Construction Making India Brick by Brick

Engineering Procurement & Construction Making India Brick by Brick

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